Grim Outlook for Square-Enix - Lower earning estimate

[Galadriels]

I noticed this new report in today's Citi SmithBarney Nikko daily.  So I took the liberty to cut and paste it.



Basically, operating profit is cut 50% from 30 billion to 15 billion yen given the weakness of Japanese market.  (I recall some recent news flash about Ubisoft pulling out of Japan all together?)  

The rational behind the acquisition of Taito (the maker of Space Invader, Bubble Bobble, Qix) has always been rather puzzling to everyone, due to a lack of fit with Square-Enix.  

This downward revision is significantly given that Final Fantasy XII sold 2 million+ 1st week in Japan and Kingdom Hearts II sold over 600K 1st week in the U.S.  Both results are already accounted for in this revision, as Japanese corporate year ends on March 31.  This can only imply that other titles such as FF7 Dirge of Cerberus fared much worse and is likely one of the "write-off" mentioned above.

[ATB]

I ask these question as someone who has a tentative grasp on financials/economic reports:  

1. Is Square Enix cash rich? I mean they've been making blockbusters for decades now.  I'd think they have a pretty fat wad and could stave off a few bad quarters/years.

2. How does a bad year make for a grim outlook?  Has this been a problem for consecutive years or is this a blip?

3. I don't know for certain, but I would expect that SE is planning a huge game in support of PS3 launch. Is this true? If so, I'd presume they'd do ok as a result of that console's debut

[Kevin Grey]

I ask these question as someone who has a tentative grasp on financials/economic reports:  

1. Is Square Enix cash rich? I mean they've been making blockbusters for decades now.  I'd think they have a pretty fat wad and could stave off a few bad quarters/years.

I don't know their current situation but the $100 million debacle that was the Final Fantasy: The Spirits Within move nearly bankrupted the company.  They've come along way back from that now but the ramifications of that failure are still being felt.  

2. How does a bad year make for a grim outlook?  Has this been a problem for consecutive years or is this a blip?

"Grim outlook" is pushing things a bit far- they're still profitable but its never a good thing to miss earnings forcasts so poorly.  The fact that this could happen after selling 3 million+ copies of KH2 and FFXII combined just in Japan tells me that their expectations are probably horribly overinflated.  The fact that Dirge of Cerebus can sell 500k in just one market, a lot by any measure especially for a FPS in the  Japanese market (they don't normally like FPS games) and still be seen as a disappointment by some tells me that their expectations aren't grounded in reality.

3. I don't know for certain, but I would expect that SE is planning a huge game in support of PS3 launch. Is this true? If so, I'd presume they'd do ok as a result of that console's debut

A huge product in support of launch is extremely doubtful.  Their forte, role playing games, take much longer to develop than most genres and consequently most system launches are devoid of any RPGs of real substance.  They have experimented with other genres early in a console's lifecycle (The Bouncer, Driving Emotion S) but that almost always ends in failure.  It will likely be at least a year into the PS3's lifespan before we see a "heavy hitter" title from them.  

The big question is when  FF13 will hit.  Normally we might be looking a few years but since they usually work in parellel on the games and FFXII was almost two years overdue, there has been speculation that FF13 might be much closer than we think with a release as soon as next year.  Their other bread and butter, Dragon Quest, are generally slower to develop with only one title per generation the last decade so who knows when we'll see DQ9?

[metallicorphan]

well perhaps they had better release final fantasy 12 and kingdom hearts 2 earlier in europe then

[EddieA]

Aren't most gaming companies in Japan losing money, though?  I read something about Atlus suffering massive losses this last year.  As for FF13, there are several rumors flying around, including one that it's almost finished and will be a PS3 launch title.  There are also rumors that FF13 will be the sequel to FF7, and will feature the battle system from FF12, which is why its development time was lower than that of FF12.  Square Enix is supposed to have a major surprise at E3, so I'm guessing it's either FF13 or FF7-2, or the announcement that they are the same game.

[Devil]

Nintendo is making money!  :wink:

[Hetz]

Well, than maybe they should tell Sony to take a hike and make single player Final Fantasy for all consoles, instead of just the PS2/PS3. More money for them.

[Dante Rising]

If you look at their relatively recent portfolio, the company has released a significant amount of mediocre titles:

Romancing Saga
Musashi
Fullmetal Alchemist (1 and 2)
Drakengard (1 and 2)
Final Fantasy X-2

Dragon Quest 8, FFXII, FF Online,  and Kingdom Hearts 2 will go a long way to rehabilitating the company. I think we are in tail end of their slump.

[depward]

If you look at their relatively recent portfolio, the company has released a significant amount of mediocre titles:

Romancing Saga

HEY!  Mediocore in terms of sales, brilliant in terms of gameplay/art direction.  That's a good game right there!

[Jumangi]

"Grim outlook" is a result of the modern day thinking of companies. Its all about the current quarter or next quarter and will they "hit the numbers". Heck I've seen stocks get hit because they don't beat the numbers by enough to satisfy the me me me, now now now attitude so many investors have these days. Square may not be doing great now but to use the word grim in describing their future is just foolish.

[Kevin Grey]

If you look at their relatively recent portfolio, the company has released a significant amount of mediocre titles:

Romancing Saga
Musashi
Fullmetal Alchemist (1 and 2)
Drakengard (1 and 2)
Final Fantasy X-2

Dragon Quest 8, FFXII, FF Online,  and Kingdom Hearts 2 will go a long way to rehabilitating the company. I think we are in tail end of their slump.

FMA 1&2 and Drakenguard 1&2 weren't developed internally IIRC.  They got a cut as publisher but I doubt that they were very costly in terms of money (FMA probably turned a nice profit in Japan where the property is incredibly popular) and certainly not in terms of developmental resources.    Romancing Saga actually did pretty decently in Japan (not so here).  And FFX-2 was actually incredibly successful, selling well over 3 million copies worldwide which is a huge amount of profit considering that they were able to reuse the engine and art assets from FFX.  

Certainly none of these properties were big enough to cause them to miss their earning forcasts so dramatically.  I'm guessing most of the blame lies with the Taito aquisition not turning out nearly as well as they hoped.

[Tebunker]

If you look at their relatively recent portfolio, the company has released a significant amount of mediocre titles:

Romancing Saga

HEY!  Mediocore in terms of sales, brilliant in terms of gameplay/art direction.  That's a good game right there!

I just wanted to second this, god this game is great. Definately a big MISS by the US media and gamers.

[unbreakable]

Has FFXI been successful for them?

[edit] BTW, I think the failure that was "Spirits Within" was the entire reason Square had to merge with Enix.

$100 MILLION.  WTF were they THINKING?!?!?!

[edit2] Square, give the people what they want!!  PORT CHRONO TRIGGER TO A HANDHELD!!!

[Kevin Grey]

Has FFXI been successful for them?

I think so- at one point I think they had a subscriber base of 600k or so.  I'm sure it has dropped since but that's a lot of monthly revenue.

[metallicorphan]

i cant see it not being sucessful really,money wise

they have charges of $13 a month

whenever i was on,on the beta or on the pc there was sometimes 4000 people playing........now,they have 32 servers up and running(and one beta)

13(dollars)x4000(people)=$52,000
x32(servers)
=$1,664,000

and thats a month!!!!!....and thats not included the people who still have an account up but dont play

okay,some of that goes into development and maintanance,not forgetting running the actual servers...can you see that costing this much??

i cant either...this is just to calculate around 128,000 people..and if what you said is true that there was 600,000....well...

i just cant see how square-enix are suppose to be suffering